German Supply Chain Law and UN Sustainable Development Goals
Key Information and Sustainable Ideas for the Transport and Logistics Industry
Organic fashion, sustainable gifts, climate neutral travel – consumer behaviour is sending a clear message. But unfortunately, Germany ranks fourth on a list of countries with the largest environmental footprint, and is home to only five of the 100 most sustainable companies in the world. But the new German Act on Corporate Due Diligence in Supply Chains (Sorgfaltspflichtengesetz - LkSG) is designed to change all that. It requires German companies to ensure that their supply chains, global and local, are climate neutral and ethical. The first phase of the law takes effect in 2023.
The Canadian organisation Corporate Knights does a yearly analysis of the world’s most sustainable corporations, and is the source of the sobering statistic on Germany’s sustainable companies mentioned above.
So why is Germany so far behind? Well, right now, acting sustainably as a company within Germany is purely voluntary. That may be one reason: voluntary measures just don’t seem that urgent. The SCM consulting firm Höveler Holzmann carried out a study in 2020, surveying managers at mid-sized and publicly traded German companies. The results showed that only ten percent of those companies that the new law applies to are currently meeting all sustainable supply chain requirements. That means that once the LkSG takes effect, many companies will be left scrambling to comply.
This blog post provides information on what the new law entails, shows how transport and logistics companies can make changes and create new opportunities based on the law, and examines how companies can use the UN Sustainable Development Goals as a guide for transforming their businesses.
German Act on Corporate Due Diligence in Supply Chains (LkSG) - Key Points
The clock is ticking. Supply chain laws have already been introduced in France, the Netherlands, the UK and the USA, and on June 25 2021, Germany became the latest country to pass one. The law applies to German manufacturers and any German branch offices of foreign companies, requiring
- Compliance with human rights regulations and environmental protection standards when exporting to or importing from foreign countries.
- Transparency within global supply chains, starting with raw materials
The law has two stages:
- It applies to companies with more than 3,000 employees as of January 1 2023
- And to companies with more than 1,000 employees as of January 1 2024
Companies with fewer than 1,000 employees are not directly affected by the German Act on Corporate Due Diligence in Supply Chains. But that does not mean that they have no need to act. As service providers, carriers and subsidiaries of larger companies, they are part of the supply chain.
Companies must be able to prove that they are acting sustainably
Companies that are committed to sustainability and use said commitment as advertising will, in the future, be required to provide proof. If they cannot, they must be prepared to face the consequences. All supply chain participants will be required to report any violations as soon as they become apparent. This will be monitored by German Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle - BAFA); they will also determine the penalty in the event of violations. Potential penalties include fines or exclusion from contracts. It is important to note that the law also promises state aid for companies that voluntarily implement sustainable practices.
The LkSG includes both regulations and incentives
The law is in no way intended to disrupt supply chains or introduce obstacles for affected companies. In fact, just the opposite: sustainability and transparency within the supply chain are required for all participants. And the law offers a variety of opportunities for smaller companies to participate voluntarily in order to stay competitive. As such, the law also acts as an incentive for companies, encouraging them to really examine the issue and see it as an opportunity.
The law, by the way, will also apply to the German government. After all,
- Germany as a nation has global trade relationships and
- The law requires the state to support companies that voluntarily introduce sustainability measures.
Suppliers: transport and logistics companies
There will definitely be an increased focus on transport and logistics service providers. In their role as suppliers and service providers, they are either directly affected as contractual partners of manufacturing and trading companies, playing an essential role in the value added chain. Or they may be indirectly affected, as subsidiaries.
Transform requirements into competitive advantages – act now
The competition never sleeps. Any company that is part of the supply chain for companies with more than 3,000 employees must, as of 2023, also act sustainably. Implementing sustainable practices requires organisational effort and financial investments.
But the advantages are clear:
- Increased resilience thanks to sound risk management
- Prepares your business for the future
- Improves your reputation with business partners
- Your company will be a more attractive employer
- Commitment to human rights and environmental protection
These things and more increase sustainable companies’ competitive advantage. The obvious conclusion: companies that do not focus on implementing and integrating sustainable processes into their business model are shooting themselves in the foot.
UN Sustainable Development Goals: a guide for transport and logistics companies
The 17 UN Sustainable Development Goals represent a milestone in the history of sustainability. They were agreed upon as part of the United Nations Sustainable Development Summit in September 2015 in New York, and focus on the three pillars of sustainability: social equity, environmental protection and economic viability. The United Nations has a website dedicated to these goals and containing specific information on each one.
The target audience is
- Civil society
- Economic actors
- Every individual around the world.
The German Act on Corporate Due Diligence in Supply Chains can be seen as part of the efforts being made to meet these goals.
5 UN Sustainable Development Goals for transport and logistics companies
In essence, all 17 goals are so broad that companies can easily implement measures for meeting each one.
Here are 5 examples:
1. Good health and well-being (Goal 3)
This goal deals with health care for all people, but also with things that influence health and well-being. This includes problems such as air, water, and ground pollution.
- Calculate your environmental footprint. This allows you to calculate the emissions produced by your company, among other figures, and discover ways to reduce your carbon footprint. Transport companies in particular should be on the lookout for new technologies. One example is alternatives to combustion engines in trucks, developed to contribute to decarbonisation.
- Health and wellness programs for employees also fall under this goal. Whether they are at a desk or behind the wheel, many people sit for long periods of time, which is bad for their backs. To counteract this, as one idea among many, your company could work together with a health insurance provider to organise courses that promote back health.
2. Quality education (Goal 4)
The goal is to offer all people high quality, sustainable education, regardless of who they are or where they come from.
- If you offer on-the-job training, you could help prevent the coming specialist shortage. In Germany, many of the jobs on offer in the transport and logistics industry are jobs that can be learned through an apprenticeship, with no need for a high school diploma or degree. Improve diversity at your company by ignoring stereotypes regarding who usually practices what profession. This will help help you find and train motivated specialists who will stay with your company over the long-term.
- Provide training for your employees. To stay competitive and keep up with the times, it is important to invest in training employees, so they can develop professionally and stay up to date when it comes to the latest industry expertise. After all, investing in your employees is just one more way to invest in your company. By the way: there are employee training sessions available that specifically focus on sustainability.
3. Clean water and sanitation (Goal 6)
This goal aims to provide access to clean water and sanitation to every single person.
- Truck drivers have a physically difficult job, and access to clean sanitary facilities is not always easy to find, a fact that was highlighted during the pandemic. Help meet this goal by offering drivers access to well looked after sanitary facilities, if possible.
4. Affordable and clean energy (Goal 7)
The goal is to make it easier to access renewable energy and ensure that access is affordable.
- But it would be impractical to install solar panels on the roof of the office, and there isn’t an easy way to access geothermal power to heat the premises? No problem, there are other ways to introduce sustainable energy practices to your business. There are so many green electricity providers to choose from, including those that offer climate neutral power grids for use by companies.
5. Industry, innovation and infrastructure (Goal 9)
The goal is to further modernisation and promote investments in sustainable infrastructure and technologies, with a particular focus on energy and transport.
- Efficient engines are a great investment, and other potential ways to contribute to this goal include avoiding empty runs, consolidating transports and digitalising transport processes. TIMOCOM’s Smart Logistics System is the perfect tool for achieving these goals, even allowing customers to create legally binding transport orders that can be processed 100% digitally.
Sustainability is an opportunity
For some companies, this is the last year in which they are able to make the necessary preparations for compliance with the German Act on Corporate Due Diligence in Supply Chains. They have to make changes now. But not to worry, companies need not face the change management process alone. Consulting companies can support you as you calculate your environmental footprint, develop sustainability strategies including a concrete plan of action, create a budget and implement the changes with help and support from your employees and customers.
Integrate sustainability into your code of conduct
As part of the first step, you could send your Code of Conduct to your customers and business partners. More and more companies are requesting that business partners provide their code of conduct in order to ensure that all their supply chain participants are committed to sustainability. There are plenty of sample codes of conduct available to view for free on the internet. These can be used, adapted and added to as necessary.
Engaging stakeholders: employees, customers, business partners
It is important that all parties are on the same page and actively involved in the process, because sustainability cannot be achieved in a vacuum. Make sure you explain why you are making these changes, and what effect they will have. Here are some things to consider: What ideas do your employees have about sustainability at work? What private endeavours for increasing sustainability can be adopted at work? Are your business partners and customers prepared to pay more for sustainable services? If yes, how much more?
Invest in the future
Surveys show that German consumers are increasingly taking sustainability into account when they purchase products: around 12 percent of Germans believe it is very important to take sustainability into account (in comparison, in 2017 that figure was 9.5 percent), and around 29 percent of Germans largely agree that taking sustainability into account is important (in 2017 it was 25.5 percent). This despite the fact that fair trade items are often much more expensive than average. This commitment to buying sustainable products is paired with a willingness to pay more for such products.
Consumer behaviour, economics, government policies, ethics and environmental consciousness – the focus is shifting more and more towards sustainability. Your company can act now to be a part of and shape this transformation.
You can find detailed information on the LkSG as well as corrections regarding misinformation on the website of the German Ministry for Economic Cooperation and Development (Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung - BMZ). In addition, the German Agency for Business & Economic Development has answers to many questions, including questions regarding potential penalties.
TIMOCOM has always been committed to sustainability, using a variety of approaches but with a particular focus on digitalisation. The Smart Logistics System allows customers to organise, confirm and plan transports digitally. The freight exchange and tracking applications support customers as they organise transports that maximise use of capacities and efficient route planning. This saves resources and optimises processes.
You may also be interested in:
Our sustainable logistics blog series, part 1 Sustainability: 5 important concepts for the logistics industry and the biggest milestones along the way
Our sustainable logistics blog series, part 2 Umweltschutz im Güterverkehr: Was Unternehmer tun können